What is the difference between tacit collusion and cartels?

 

Difference between cartel and tacit collusion

Cartel;

• Cartel is formal agreement.
• Cartel is more organized.
• Secretive nature of the agreement is hard to detect by less hard compared to collusion.

Tacit collusion;

• Tacit collusion is informal in nature.
• collusion is less organized.
• Secretive nature of agreement is very hard to be detected.

Step-by-step explanation

A cartel is a structured arrangement to control the price of a product or item, etc. between corporations, such as OPEC, When companies make an unofficial price-fixing deal, implicit collusion occurs.

If oligopoly firms decide in a certain market what quantity to manufacture and what price to pay, they are faced with a temptation to act as if they were a monopoly. By working together, oligopolistic businesses can keep down industrial production, charge a higher cost, and divide income among themselves. When firms work together to restrict production and keep prices high, this is called collusion. A group of businesses with a structured collusion arrangement is called a cartel to produce the monopoly commodity and sell it at the price of the monopoly.

Tacit collusion refers to the situation where rivals align rates without clear agreements. Alternatively, they rely on a common agreement that they will all make more money if they compromise and hold the price artificially high, but any deviation from that (e.g. lowering the price to promote more sales) would trigger a price war and affect the good of all. Tacit collusion, such as high price and/or poor results, can have the same consequences as overt collusion, but without any hard proof of touch, it can not be punished.